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CME Group Inc. (NASDAQ:CME)

Q1 FY08 Earnings Call

April 22, 2008, 8:30 AM ET

Executives

John Peschier - Director, IR

Craig S. Donohue - CEO

James E. Parisi - Managing Director and CFO

Rick Redding - Managing Director, Products & Services

Analysts

Howard Chen - Credit Suisse

Chris Allen - Banc of America Securities

Rich Repetto - Sandler O'Neill

Mike Vinciquerra - BMO Capital Markets

Niamh Alexander - KBW

Donald Fandetti - Citigroup

Jonathan Casteleyn - Wachovia Capital

Dan Harris - Goldman Sachs

Rob Rutschow - Deutsche Bank

Roger Freeman - Lehman Brothers

Operator

Good day, everyone, and welcome to the CME Group Q1 '08 Earnings Call. As a remainder, today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn things to Mr. John Peschier. Please go ahead, sir.

John Peschier - Director, Investor Relations

Thank you, and thank you all for joining us. Craig Donohue, our CEO, and Jamie Parisi, our CFO will spend a few minutes outlining the highlights of the first quarter. Then we will open up the call for your questions. Terry Duffy, our Executive Chairman; and Rick Redding, our Head of Products and Services, have also joined us this morning and will participate in the Q&A session.

Before they begin, I will read the Safe Harbor language. Statements made in this call and in the accompanying slides on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. For detailed information about factors that may affect our performance… may be found in our filings with the SEC including our most recent Form 10-K, which is available on the Investor Relations section of the CME Group website.

During this call, we will refer to GAAP and non-GAAP pro forma results. Reconciliation is available in our press release, and there is an accompanying file on the Investor Relations portion of our website that provides detailed quarterly information on a GAAP and pro forma basis.

With that, I would like to turn the call over to Craig.

Craig S. Donohue - Chief Executive Officer

Thank you, John, and thank you for joining us this morning. With the backdrop of significant unrest in global financial markets and a challenging environment for many financial services companies, CME Group continued to execute on our business plan and deliver significant topline growth.

Total average daily volume of 13.7 million contracts grew by more than 32% on a pro forma basis compared with the prior year, with every product line up more than 15%. It is important to note, we have generated strong volume growth every year since we demutualized with changing economic backdrop. We went into a recession in 2001 and came out of it. We have seen flat yield curves, steep yield curves, rising and falling interest rates, and active and inactive Federal Reserve Bank monetary policy and strong volatility as well as decreasing volatility.

The steady growth throughout all of our product areas, we believe, has been driven by secular shifts and importantly by many of the critical initiatives we embark upon to expand our business. Those include our continuing efforts to expand our global customer base, improve the speed and functionality of our systems, and develop innovative new markets and products.

This past quarter was a very active and productive quarter for CME Group. We successfully integrated the CBOT products onto Globex in January. We did so in two phases. First, on January 14th we added CBOT commodity and equity volume, followed by January 28th when we added as CBOT treasury and other interest rate products. In February, we broke multiple electronic records in treasury and agricultural commodity products. Also in February, we completed our transaction with BM&F, significantly enhancing our opportunities in Latin America. At the end of February and beginning of March, we implemented several speed enhancements which reduced our average response time from 29 milliseconds in Q4 when we handled 109 million orders per day to 23 milliseconds in Q1 when we handled 194 million orders per day.

During the month of March, we averaged under 15 milliseconds. We have successfully consolidated the equity floor-based products to the CBOT location and we will move interest rate products next week. Finally, we will complete the floor transition when we move the CME Agricultural products in early May. At that point, the integration will be virtually complete, within ten months of the close of our merger with the Chicago Board of Trade.

On March 17th, we announced our agreement to acquire the New York Mercantile Exchange. We are currently in the process of preparing the joint proxy statement and registration statement, which will be filed with the SEC shortly. At the same time, we are proceeding with the review process under the Hart-Scott-Rodino Act to obtain the necessary antitrust clearance to proceed with this transaction. We expect to complete the transaction by the end of 2008.

At the end of March, we also completed an acquisition of Credit Market Analysis, a leading provider of credit derivatives market data. This acquisition will provide CME Group with greater exposure to the rapidly growing 62 trillion in notional outstanding credit derivatives market. It offers the potential to leverage CME Group’s clearing and trade execution capabilities, enhancing CME's products to create greater value and efficiencies for its customers.

Before I turn the call over to Jamie, I would like to update you on one aspect of our growth strategy, which is to increase global penetration. And I will also provide my perspective on the current trading environment. First, on the global front, in our view we are at the very early stages of penetrating what we believe will be a significant source of future business growth. While it is difficult for us to measure exactly where our trading volumes originate as many global firms connect through private global networks, there is some data available that gives a sense of our progress. We are seeing strong volumes coming through our international telecommunications hubs, which in the first quarter amounted to 930,000 contracts per day, up 76% compared to Q1 '07, and representing about 7% of overall volume. Our hub in Singapore facilitated volume growth above 100%.

Another measure we can look at is the time of day the trades are executed. In Q1, approximately 15.3% of our volume came during non-US trading hours, up from approximately 12.8% one year ago. While we are pleased with the results to date, we also see the opportunity to more significantly enhance our capabilities in Europe, Asia and Latin America.

I mentioned the BM&F transaction, and one of our main objectives there is to significantly increase the distribution of CME's global benchmark products. We have recently hired a seasoned execute to run our Latin American operations, helping to drive growth from that expanding region. One of our major objectives in 2008 is to expand our global reach and build on the non-US volume I referenced earlier through more effective cross-selling and leveraging of our existing customer relationship. Our strategy is to enhance our sales and marketing capabilities in Europe, Asia and Latin America with our product sales group tightly linked within our regional structure. We will also be adding resources in product research and business development in order to further enhance our growth opportunities on a global basis.

As we expand our customer base, we are also spending more time considering where large sources of capital will come from as we look out five to ten years from now and how to effectively market our products and our capabilities. One significant source of activity is expected to come from Sovereign Wealth Funds. Over the last six months, we have increased our marketing and sales efforts to these groups. The International Monetary Fund recently estimated that the current funds controlled by Sovereign Wealth Funds would quadruple from $2.5 trillion now to $10 trillion by 2012.

Now, I would like to briefly address the question of the impact of deleveraging on current and future CME Group trading volumes. This topic first came into play in August of last year and continues to be an area of discussion. There are three major points that lead us to conclude that while deleveraging has impacted some markets, there is little to no evidence that it will inhibit our ability to sustain our growth rates since we demutualized. We have spoken to numerous end customers, FCMs and settlement banks about their views on current long-term volumes in our listed derivatives markets. The three important considerations include the make-up of our customer base, the capital efficiency of the central counter party clearing model including lower financing costs compared to securities and OTC markets, and thirdly the benefits of risk mitigation and transparency.

It is important to understand that… our customer base and their business effects on both our volume and open interest. Over 80% of our current volume comes from the buy side, primarily made up of agricultural... I'm sorry, algorithmic trading firms, hedge funds and asset managers as well as other buy side participants. The algorithmic trading segment had significant volume growth during the quarter, and based on our discussions with many of them they have been beneficiaries of market volatility from a trading perspective. These players utilize strategies that are not capital intensive and generally they move in and out of the market without holding meaningful, open interest.

Another major volume segment is comprised of large established hedge funds including global macro hedge funds. As we look at their growth, we also see healthy activity. Bank proprietary trading volumes overall also had growth rates that were just under our overall average. Banks are looking at ways to adjust their balance sheets and decrease risks and our products allow traders to do just that.

Turning to capital efficiency, we clearly have an advantage relative to securities and OTC markets, which is important as credit becomes tighter. Unlike the OTC and securities markets, we are able to provide efficiency due to our twice-daily mark-to-market and portfolio-based margining structure. We also provide cross-margining and multilateral netting advantages unlike the OTC market. Since August, banks have had to become more selective in terms of capital or margin in the prime brokerage part of their OTC businesses. Many firms without the same access to capital from their prime broker are turning increasingly to the futures market. Several FCMs we have spoken to recently are seeing new users like these accessing the futures markets, which benefits the futures division of many investment banks as well as exchanges like CME Group.

The third point is that our markets stand out from the OTC markets based on a real-time and transparent pricing mechanism and the credit risk mitigation that is available through our central counter-party clearing model. Many problems beginning in August in structured OTC markets revolved around the lack of reliable pricing data and lack of real liquidity. Many of these structured products don't have a viable exchange market in which to lay off risk. In our markets, users can trade with all counter parties and our pricing is available in real-time on primarily electronic markets to prevent hidden risks. It is important to note that we have never had a default due to counter-party exposure in our entire history. This issue is currently resonating with end-user customers we have spoken to who have commented on the safety, transparency and significant liquidity of our markets.

In summary, these points are critical to understand why we believe that deleveraging certain market segments will not have the same impact on our markets. The high velocity algorithmic traders tell us their business is healthier than ever, and they encourage us to continue innovating the way we have to improve our technology capabilities even further so they can have more inputs, which drive their trading behavior. Many of the larger hedge funds have a proven track record and could be likely beneficiaries as their customers decide where to allocate capital. We expect the largest hedge funds to continue to get bigger. And finally, the investments banks have a need to trade in the most efficient way from a balance sheet and capital perspective, and we believe they will increasingly see the benefits of our markets. We also believe we can work with them to provide solutions that end customers' demand in terms of additional products, either traded or cleared, that can benefit each of us. While some may be interested in taking less proprietary risk, they are also looking for ways to increase their agency business.

In terms of our continued overall growth, we believe the secular trends have greater need for risk management products. Growing investor sophistication, a compelling value proposition compared to OTC markets, and continued growth in sources of capital all remain firmly in place. In addition to these secular trends, we also will continue to enhance our ability to grow through more significant global customer acquisition, continued product and technology innovation, additional transaction processing opportunities like BM&F, and growth in our options businesses. In our view, we are better positioned to take advantage of the opportunities that present themselves in the next five years than we were five years ago.

With that, let me turn the call over to Jamie.

James E. Parisi - Managing Director and Chief Financial Officer

Thank you, Craig. I am happy to report that CME Group posted another record quarter financially. Our operating income, both on a GAAP and pro forma basis, exceeded the previous records set in the third quarter of 2007. The operating leverage inherent in our business model is alive and well. The margin on incremental revenues compared to Q1 '07 was 97% on a pro forma basis, while our customers enjoyed lower average fees and the efficiencies we have delivered to them as a result of the CBOT merger.

The GAAP results for the first quarter are outlined in detail in the press release. In summary, we delivered net income of $284 million or $5.25 per share. Included within these results were $8.7 million of CBOT merger-related operating expenses, $8.4 million of transaction costs related to the BM&F agreement, $3.8 million related to the acquisition of CMA, and an $8.4 million reduction of non-operating expense related to CBOE ERP guarantee.

We’ve provided a reconciliation between GAAP and pro forma results in the back of the press release, and we have also posted both GAAP and pro forma historical quarterly income statements on our website. We exclude costs associated with mergers and acquisitions we’ve completed when generating our pro forma financial statement. As I move on to the details of the income statement, please note that the comparisons I referenced are based on the pro forma results.

Our total pro forma revenue rose 25% to $625 million in the first quarter, driven primarily by strong CME Group volumes. Average daily volume was up 32%, led by equity volume, up 66% versus last year, while the average rate per contract was down only 1.6%. Our average rate per contract was $0.63 in Q1, down from $0.64 in Q1 last year and down from $0.648 in the fourth quarter of 2007. These decreases are due primarily to faster growth and lower fee member volume versus higher fee non-member volume.

Quotation data fees were $57 million for the quarter, up 13% from Q1 of 2007. At the end of the quarter, we had approximately 300,000 users who subscribed for the base devices, up approximately 7,000 compared to the end of the year. In January of 2008, we increased our fee per market data screen from $50 per month to $55 per month. While we have not yet seen any signs of weakness, with the recent announcements of layoff on Wall Street our user count may be impacted.

Our first quarter processing services revenue was $17.5 million, up 35%. In Q1 of '08, we handled more than 1 million NYMEX contracts per day, up from $850,000 in the fourth [ph] quarter. In Q1, revenue from NYMEX totaled $17 million, which averaged $0.27 per contract. This is at the high end of the RPC guidance we had given some time ago for this arrangement.

I will now take a few minutes to review expenses. Total pro forma operating expenses for Q1 were $214 million, up 2% versus Q1 last year. The increase in our license fee expense, which is tied directly to equity volume increases, accounted for 75% of the overall expense increase. In addition, we are hitting our cost synergy target. In Q1, we realized $22 million of synergies as a result of our merger with CBOT. On an annualized basis, this equate to $87 million, so we are more than halfway to the run rate of at least $150 million by year-end.

Total compensation related expense was down $5 million compared to Q1 of 2007 and increased $1.5 million sequentially to $73 million, which is lower than our normal Q1 compensation increase. There are three components of this expense; salaries and benefits, bonus, and stock-based compensation. Salaries and benefits totaled $57 million, up $3 million sequentially.

As of March 31st, the CME Group headcount stood at 1990, up 20 since the beginning of the year. This increase includes approximately 50 employees from our acquisition of CMA and a reduction of 30 positions due to the CBOT merger. Taking a look at our remaining transitional employees related to the CBOT merger, we expect an additional reduction of 110 employees this quarter and a final 20 in the second half of the year. In terms of ongoing headcount growth, we plan to add positions in marketing, sales, technology and business development, much of which is tied to building a more significant employee presence globally, as Craig mentioned.

Next, our employee bonus accrual totaled $10 million, down $1 million versus Q4. Remember, the annual bonus is tied to a cash earnings target that we set well above the 2007 actual results. And finally, the stock-based portion of compensation was $6.3 million, which was down $400,000 relative to the prior year.

We often get asked if operating margins can continue to expand. I believe the first quarter was solid evidence that the answer to that question is yes. Operating margin was 66% on a pro forma basis, which was our best quarter ever, and well above 58% in the first quarter last year.

Non-operating income was down in Q1 versus Q4. This resulted primarily from decreased investment income, which was down $6 million sequentially, driven by lower rates of return. Between cash and marketable securities and clearing house balances, the average daily balance of $1.4 billion in Q4 increased to $1.6 billion in Q1. But the average annual rate of turn… return dropped from 4.1% to 3.3%. In addition, due to the performance of the equity market, there was a negative impact sequentially on deferred compensation earnings of $1.8 million.

Lastly, during the first quarter, we instituted a foreign currency hedge to mitigate the FX risk in our BM&F acquisition, which resulted in a decreased investment income of $2.2 million. Generally, due to the time decay of the option, the hedge will reduce investment income by approximately $3 million per quarter on average. Additionally, the value of the hedge will fluctuate due to changes in volatility, relative interest rates, and the spot value of the riyal versus the dollar. As of 03/31, the book value of our investment in BM&F is approximately $630 million and the current market value is approximately $792 million.

For the first quarter, the net securities lending results totaled approximately $5.4 million. The spread between the average rate earned and the average rate paid remained abnormally high during the first quarter of 2008, due to the combined effect of changes in the federal discount rate and an increase in market demand for the securities we had available to lend through this program. Beginning in late March 2008, we temporarily suspended our securities lending program due to dislocations in the market. We continue to review the program and we'll resume it when we feel it is prudent to do so.

Our pro forma pretax income was $420 million in Q1, up 36% from the first quarter last year. Net income for the quarter was $291 million, and diluted pro forma EPS was $5.39. In the quarter, we had a tax benefit of $38.6 million due to a change in the Illinois tax rate treatment, proportionate of revenues sourced within the state. Excluding the tax benefit, our net income would have been $252 million and diluted EPS would have been $4.67.

Moving on to the balance sheet, as of March 31st, we had $1.2 billion of cash and marketable securities, and short-term debt of $165 million, resulting in a net cash position of approximately $1.1 billion. Cash earnings for the quarter was $299 million, another record for CME Group. Capital expenditures, net of leasehold improvement allowances, totaled $33 million in the first quarter, driven by $22 million of technology investments, $9 million of merger integration efforts, including trading floor and Globex conversion, and $2 million of construction related to staff space [ph].

In the first quarter, we completed the acquisition of CMA for approximately $100 million. In terms of an impact to our income statement for the remainder of the year, we expect approximately $18 million of expense of which $8 million is amortization of intangibles. The increase in expense is in addition to our previously stated pro forma expense guidance of $835 million to $850 million for 2008, and puts us into a range of $855 million to $870 million. With respect to revenue from CMA, we expect it to exceed $10 million for remainder of the year, and it will be reflected in the quotation data fees line.

So far in April, we are averaging 10.7 million contracts per day, up approximately 33% compared to last year. Growth rates in each product line for April compared to last year are consistent with the growth rates we experienced in the first quarter of 2008.

With that, we would now like to open up the call for your questions.

Question and Answer

Operator

Thank you. [Operator Instructions]. Our first question today will come from Howard Chen with Credit Suisse.

Howard Chen - Credit Suisse

Hi. Good morning, everyone.

Craig S. Donohue - Chief Executive Officer

Hi, Howard.

James E. Parisi - Managing Director and Chief Financial Officer

Good morning, Howard.

Howard Chen - Credit Suisse

Craig, thanks for the commentary on deleveraging. You touched on some of these figures in your prepared remarks, but I apologize, I didn't catch it all. Do you mind reviewing again on the change in activity levels that you’ve seen so far amongst those three customer segments you mentioned on slide 11, algo firms, large hedge funds, and investments banks, if not specific then compared to the overall growth rate that you guys experienced during the quarter?

Craig S. Donohue - Chief Executive Officer

Right. Well, in very general terms what we said was that we saw very stable levels of activity including some growth in the proprietary electronic trading group segment as well as in the macro hedge fund area. And in terms of investment bank proprietary trading activity, which tends to be quite a bit smaller than proprietary trading group and hedge fund activity, we saw growth rates that were just under our overall average.

Howard Chen - Credit Suisse

Okay, and any meaningful changes second quarter to date?

Craig S. Donohue - Chief Executive Officer

No.

Howard Chen - Credit Suisse

Okay. And then on the CBOT merger integration last quarter, Rick, you mentioned you were seeing some deeper liquidity pools in the CBOT product that had migrated over to Globex. Do you mind providing an update here and maybe give us a sense of what you've seen close to the treasury tick size reductions thus far in those product?

Rick Redding - Managing Director, Products & Services

Yes. Howard, there is a lot going on in the treasury market right now for all the dislocations that are happening. In general, we are seeing both in the cash and the futures market is people trading at the shorter end of the curve. We're seeing dramatic increases in volumes in the two-year product and five-year product, growing much faster than the 10-year and the 30-year. The level of depth and the kind of shorter end of the market, the two-year and five-year has... it has got deeper and the 10-year and the 30-year, both in the cash and the futures, the market is not as deep as it was, say, a year ago or even nine months ago.

Howard Chen - Credit Suisse

Okay. And then longer term, Craig, you spoke a bit about... you've always spoken a bit about the OTC opportunities. You guys announced the acquisition of CMA during the course of quarter. There has been a lot of industry chatter with regards to what the future landscape of CDS… the CDS market looks like. Can you update us on how CME Group is positioned to kind of tap into that growing marketplace? And maybe how that's different than perhaps swap stream, FX MarketSpace, some of the other OTC opportunities you’ve attacked in the past?

Craig S. Donohue - Chief Executive Officer

Right. Well, I mean obviously FX MarketSpace and swap stream are really designed to help us get increasingly into the over-the-counter foreign exchange and interest rate markets. CMA is, as I’ve described, a firm that is a vital source of pricing information and market data in the credit markets, where previously we've not been very active in terms of product development or over-the-counter clearing services. Essentially, we think that that's a well-positioned company on a standalone basis for growth in the credit derivatives market. But we also think that over the longer run, it will better afford us opportunities from a credit product development or central counter-party clearing services perspective and so we think it's… helps position us in that area.

And I guess the other thing that I would just mention is that today we've filed an application with the CFTC to begin to provide for clear basis swaps in not only corn, but other of our grain and oil seed commodity products. And we see a lot of potential for growth in commodity products by creating more structured products that help address volatile basis risks that people are experiencing in the market. So that effectively puts us into the position of having an OTC capability in all of the asset classes where we have deep liquidity in the futures.

Howard Chen - Credit Suisse

Great, thanks, and then, Jamie, quick one on the numbers. Excluding the impact of future acquisitions and the cash flow you generate on an ongoing basis, should we expect any future changes to that $1.1 billion cash balance going forward due to some of the recent moving parts to the cash balance? And can you also talk about the impact of lower rates and how you and the treasury team are thinking about managing the cash balance going forward?

James E. Parisi - Managing Director and Chief Financial Officer

Well, as you know, with the NYMEX transaction, a significant portion of the cash balance will be eaten into as we use that to help to finance that transaction. Going forward from there, as we continue to generate cash we will then use it either to pay down a portion of the debt that we take on from NYMEX and also look at what we can do on the capital structure side, as that’s something that we review very regularly with our Board and our Finance Committee of the Board and our management team here. So we’re not… we haven't... as we’ve said all long, we want to maintain that flexibility currently in the capital structure due… to get these transactions done, but in the long run we are open to having [inaudible] on the balance sheet.

Howard Chen - Credit Suisse

And the impact of lower rates and how you guys think about that?

James E. Parisi - Managing Director and Chief Financial Officer

Sure. As… certainly, as the rates go down it can impact that non-operating income and it will perhaps impact the decision as to whether or not it makes sense for us to buy back shares. So it all comes into play.

Howard Chen - Credit Suisse

Okay, and then final one from me, and thanks for taking the questions. Any meaningful changes in member, non-member mix during the quarter? It seems like [inaudible] contract is holding and a bit more resilient than we would have otherwise thought.

James E. Parisi - Managing Director and Chief Financial Officer

Sure, on the member, non-member mix, the member volumes grew faster in the first quarter than the non-member volume, they both grew very healthily. Member volumes, I want to say, grew somewhere in the neighborhood of 30% plus and the non-member volumes were close to 20% growth. So we saw a good growth on both, but as… one grows fast and the other does move the mix a little bit towards the… towards that member.

Howard Chen - Credit Suisse

And a follow-up on that, more broadly do you take away anything on that with regards to this whole deleveraging commentary that your members continue to trade more than the non-members or is it that just too much noise in those figures?

James E. Parisi - Managing Director and Chief Financial Officer

I think it is positive for us all way around. You are seeing significant growth in participation across all of our customer base in our trading.

Howard Chen - Credit Suisse

Okay, thanks again.

James E. Parisi - Managing Director and Chief Financial Officer

Thank you.

Operator

Our next question will come from Chris Allen with Banc of America Securities.

Chris Allen - Banc of America Securities

Hi guys, how are you doing?

Craig S. Donohue - Chief Executive Officer

Yes. Hi, Chris.

Chris Allen - Banc of America Securities

Just going through the numbers, Jamie, just a couple of questions. Just in terms of how should we think about the investment income run rate, obviously the lower rate is somewhat easy to think about, but I guess the negative impact to the deferred comp and the FX hedges moving forward, like what would be the… kind of the key metrics, I mean obviously the deferred stock rise but --?

James E. Parisi - Managing Director and Chief Financial Officer

Yes, and deferred comp is going to be… is just… it depends on how the participants in that program have their fund invested. It tends to be much more equity markets related. So I guess if you look at how the various equity indexes are moving might give you a sense for the general direction of that in any given quarter. And then on the hedge side, as I’ve said, there is that… over time on average, just the time decay can be roughly $3 million a quarter, but you will see fluctuation on that just as volatility changes and the other inputs of the equation change.

Chris Allen - Banc of America Securities

Okay. And then just on the sec lending, I might have missed it. You mentioned that was suspended, the sec lending program?

James E. Parisi - Managing Director and Chief Financial Officer

Yes, we suspended it towards the end of the first quarter, just given the dislocations that have been going on in the markets and we're going to... we'll continue to review the program and reinstate it when we feel it’s prudent to do so. This is not without precedent. We have done this before in the past where we’ve suspended it for sometime as we weren't real comfortable with how the how markets were behaving.

Chris Allen - Banc of America Securities

Got you. And just in terms of... so for the second quarter as of right now will it just be zero [inaudible]?

James E. Parisi - Managing Director and Chief Financial Officer

For the second quarter as it stands right now, yes.

Chris Allen - Banc of America Securities

And what would be the indicated process, you’ve restarted the program, will you announce that as [ph] market get healthier?

James E. Parisi - Managing Director and Chief Financial Officer

I think it’s hard to say. We're not going to come out and announce that we're restarting. It’s likely that it would get started again in the second quarter, I just can't say when.

Chris Allen - Banc of America Securities

Okay. And then... just [inaudible] if you could give us an update on swap stream, where do you guys stand with that? I thought you guys first off launched the cleared initiative right about now?

Rick Redding - Managing Director, Products & Services

Chris, it’s Rick. Swap stream will… the cleared swap will launch this summer. There will be an announcement coming out in the next couple of weeks giving a little more information on who some of the participants are and the start date. So it will... give us another couple of weeks, we will make that more public.

Chris Allen - Banc of America Securities

Great. Thanks a lot, guys.

Craig S. Donohue - Chief Executive Officer

Thanks, Chris.

Operator

We will go next to Rich Repetto with Sandler O'Neill.

Rich Repetto - Sandler O'Neill

Yes. Good morning, guys.

Craig S. Donohue - Chief Executive Officer

Hi, Rich.

James E. Parisi - Managing Director and Chief Financial Officer

Hi, Rich.

Rich Repetto - Sandler O'Neill

First question is you took my thunder weight [ph] 97% incremental margins, 90% from 4Q as well. But on the CBOT integration, you didn't say you think about revenue synergies and I guess that… the question is can you talk about... I now it's hard to quantify, but could you give us some color there?

Craig S. Donohue - Chief Executive Officer

Yes, clearly, Rich, you've seen some uptake in moving the products from ECBOT on the Globex. So you've seen good enhancements of the revenue from that side. Obviously, now getting them on the same platform you're seeing people to do inter-related trades, people trading in treasuries against euro dollars more seamlessly. Also, don't forget that we have increased the speed of the system and reduced the latency. So we're getting some positive benefits on both CME and CBOT products there. Obviously, at the end state of this, we will look to come up with spread products, so along the treasuries and across inter-commodity spreads as well before we get through all the upgrades.

Rich Repetto - Sandler O'Neill

Okay. Next, Jamie, you've mentioned on the non-operating income a couple of items like the securities lending and the deferred comp. But if you... I was just looking at the balance sheet and the cash performance bonds and security deposits that you almost doubled quarter-to-quarter and would that be... am I reading this right, would that be a significant positive in regards to interest, a positive, because there is such a high balance now?

James E. Parisi - Managing Director and Chief Financial Officer

Typically, those deposits are... sorry, most of the deposits that are put up with the CME are based on treasury related or other sort of securities that folks put up, and those deposits fluctuate from time-to-time. They also use money market… a lot of money market mutual funds that we’ve pre-approved, and they earn the interest on those. So there is not too much in the way of additional interest that we’ll earn from increases in performance bond deposits. Where we do earn the money in the clearinghouse is on a… on the intra-day movements. There is an intra-day settlement whether it's positive float at CME and then by the next morning it’s returned, it’s redistributed out. So that's where we earn some of that… we earn the interest income and that's already embedded in the comments I had made on the investment income.

Rich Repetto - Sandler O'Neill

Okay, and my last question is sort of on Craig's volume and deleveraging comments. To me it appears… whether Rick would agree, but the open interest is not... I am not saying it is not a good indicator, but it's currently not as accurate as before, given that 45% comes from option… interest rate options. And I guess the question is, are we seeing this movement where... are we seeing other movement to offset the... like you said investment banks, could they be moving more towards exchange listed products? Are you seeing that offset, and I know you said, Craig, that the bank prop funds were just slightly under the overall growth rate, but are we seeing anything like that not just in the prop funds, but from the investment banks overall?

Craig S. Donohue - Chief Executive Officer

I think we are seeing some of that. All of this is very difficult to quantify because it is not as though you can know everybody's trading strategy and trading choices among existing alternatives. But we've been saying for quite some time and I think it's been borne out in the volumes that we've seen that there is an offsetting effect, which is there is kind of flight to quality where people are more secure in a transparent deeply liquid, centrally cleared market. So the confluence of volatility as well as the safer trading and sort of counter-party credit risk environment that we afford market users I think helps offset, but might be some impacts from deleveraging.

James E. Parisi - Managing Director and Chief Financial Officer

And Rich, this is Jamie, we've talked to several of the FCMs and the futures desks at some of the large investment banks and they almost [inaudible] all have indicated that their customers… that there is favorable accretive position to using that CME and then exchange listed products, particularly in times like this and it does drive… they believe it will drive some volume over and we're seeing some of the firms actually growing their futures… the size of the futures that's hiring employees there.

Rick Redding - Managing Director, Products & Services

And Rich, this is Rick, I mean one thing is be careful on how you use all these regressions because if you look from 1986 through roughly 2007, you saw a very strong positive correlation in that point, 97, on open interest in volumes, but if you actually go back and look over the last 18 months, well before of the credit crisis started, you actually have seen an inverse correlation between volume and open interest. So, I know a lot of people are out there trying to do these regressions believing but do them too. Be careful on how you interpret them. And as Craig said, there is a lot of moving parts here and a lot of things going on underneath the market. So, we don't think it's as simple as just trying to do a regression and figure it out.

Rich Repetto - Sandler O'Neill

And would you say that that, what you call, negative correlation is driven because the open interest that's held no longer drives a significant portion of the volume like the interest rate options?

Rick Redding - Managing Director, Products & Services

Rich, I think a lot of it has to do with volatility in the market and how people’s tracing strategies are designed. If you look at it, it's even more complex than looking and saying it's an interest rate phenomena because then you have to look between the futures and the options and then you have to look even along the yield curve on where the differences are. The primary drop in open interest has being in the euro dollar options as volatility has spiked. And if you look kind of in the March period, employee volatility went above 45% euro dollars, which is pretty unbelievable. But if [inaudible] deleveraging, you will think in the five-year and the ten-year notes that you would see the options volumes declining, there’s open interest declining there as well and in fact you see the open interest going up there. So it's not… it doesn't appear to be at least empirically from their mortgage service, those are the people you would think that will be affected during this kind of credit crisis.

Rich Repetto - Sandler O'Neill

Okay, understood. Thanks, guys.

Craig S. Donohue - Chief Executive Officer

Thanks, Rich.

Operator

And our next question will come from Mike Vinciquerra with BMO Capital Markets.

Mike Vinciquerra - BMO Capital Markets

Hi, guys.

Craig S. Donohue - Chief Executive Officer

Hi, Mike.

Mike Vinciquerra - BMO Capital Markets

Two product questions, and then a couple for Jaime, if I could. First on the Grain Swaps product you announced that this morning, is the main need for this product based on the different pricing, is that the various delivery points? I saw something mentioned about that in the release and it seems somewhat similar to kind of the natural gas market in North America. Is that what you're looking at here?

Craig S. Donohue - Chief Executive Officer

Yes. The grain markets, all the commodity markets have gone through an unprecedented storm here of kind of lots of changing demand factors. The credit crunch is affecting some of the elevators. There is a lot in the commodity markets. And one of the things that we're trying to get ahead of is to make sure that all these customer segments have a product that meets their needs and that basis risk that they have from where they actually grow or start to delivered their product and to reduce that basis risk, because what we have seen in a lot of the… a lot of people have seen is that basis risk widen out here and that… we are trying to meet the needs of what those customers want.

Mike Vinciquerra - BMO Capital Markets

Is there any chance of with the capital deficiency moving in on to a clear platform that you may get drawn in some of the trading firms with speculators along with the commercial entities or is this mostly a commercial product?

Craig S. Donohue - Chief Executive Officer

Well, I mean I think in any market in order for the commercial entities to participate, you have got to have the speculative money there as well. So, that's what makes for good healthy markets and that's what we're trying to create.

Mike Vinciquerra - BMO Capital Markets

Okay. Very good, thank you. And then you guys were mentioning that in Latin America you hired an executive down there. What are the most attractive products for the market as you see it today? I assume it’s mostly commodity driven? And additionally, do you have the same types of high velocity traders in some of the largest Latin American markets that will help to grow your business down there?

Craig S. Donohue - Chief Executive Officer

Mike, I'll start and Rick can add. I think as you correctly pointed out the largest area of opportunity is really in the commodity markets. BM&F has already developed a very successful financial derivatives market in interest rates and foreign exchange and equity derivative. But only four-tenths of 1% of their volume are in the commodity area, even though Brazil is obviously a very large agricultural economy and increasingly significant in terms of production and exportation of major grains, soy beans, etcetera. So, that's an area where I think is very complementary. They have obviously a strong position in Brazil, strong distribution, but they haven't been as successful as we have been in developing a global customer base and deep liquidity and commodity. So, is that is one area that we’ll be working with them on. And then we have mentioned as well ethanol in emission areas where we will be working with them in terms of joint product development.

Mike Vinciquerra - BMO Capital Markets

Right, okay, thank you. And then, two things for Jamie, just looking at the RPC by category, you are open outcry RPC has been rising sharply in the last couple of quarters. Is there any particular reason for that?

James E. Parisi - Managing Director and Chief Financial Officer

As we see some increase perhaps in some of the mix in between the options on the floor and other open outcry that’s potentially an impact there on that rate.

Mike Vinciquerra - BMO Capital Markets

So, options are just a higher percentage of the total at this point?

James E. Parisi - Managing Director and Chief Financial Officer

Yes. Well, if you look at it, the equity standard options have been holding in pretty strong on the floor and that's a high rate… higher rate product.

Mike Vinciquerra - BMO Capital Markets

And then just one on the… Jamie, the comp ratio, you gave us some details, I appreciate that. Is this a reasonable run rate? We are now down below 12% of revs, it dropped further than we expected this quarter. But I want to make sure that we are not getting too optimistic in our future estimates?

James E. Parisi - Managing Director and Chief Financial Officer

You have got some offsetting factors there, right. We’ve got continued reduction in the workforce as it relates to the merger with the Board of Trade and then offsetting that somewhat will be the increase that we talked about on the… on our global penetration that we’re building up in those global offices. But I'd say in general it's probably not a bad area that we are at.

Mike Vinciquerra - BMO Capital Markets

Okay, great. Thank you, guys.

Operator

Our next question will come from Niamh Alexander with KBW.

Niamh Alexander - KBW

Good morning. Thanks for taking my question. I'd like to go back to the grain and the filing this morning with the CFTC, can you help me understand the timing? Do you need to wait for approval or is this something you can go out and market to your clients straight away?

Craig S. Donohue - Chief Executive Officer

Niamh, this is Craig. We have to wait for approval. This is an area where traditionally commodity swaps in our products has really been restricted by statute from being potentially cleared, although the CFTC has what we call exemptive authority to permit that. And so we filed an application with them for an exemption, so that we can offer the service, and we think that we will have very broad industry support from the traditional users of our markets and products for this exception request. It will be an improved risk management tool for them, and it certainly affords greater transparency for people who are interested in using swaps to tailor their basis risks as well as obviously reduce counter-party credit risk and increased capital efficiencies by having them centrally cleared. So it's a process that will begin with the CFTC, but we're expecting and hoping that they will be very responsive to it.

Niamh Alexander - KBW

Okay. That's helpful, thanks. I mean the CFTC is holding a hearing today on some issues in the grain markets and the lack of convergence with the futures prices and cash prices. Is this potentially also maybe offsetting a risk some of the… a slowdown in trading volume from that particular customer group of the commercials?

Craig S. Donohue - Chief Executive Officer

No, I think it's the office that really in the sense that it certainly is possible for market users today to enter into bilateral trading and credit arrangements to hedge basis risks. What this is really doing is providing for a more regulated transparent alternative where… you can do that in a market where the transactions actually are reported, so there is more price dissemination. There are position… or what we call position limits or position accountability and position reporting requirements and then also there are the standard features of central counter-party clearing including margining and daily mark-to-market protocols that are very similar to what we do in futures. So, it's really we think an incremental improvement over what can already be done today in the market.

Niamh Alexander - KBW

Okay. That's helpful, thanks. And just last one on [inaudible], I'm just trying to get a sense of maybe timing, and I assume that you have that capabilities, you have the systems already, so there wouldn't be much of the lead-time, if or when you do get approval?

Craig S. Donohue - Chief Executive Officer

That's correct. We are already doing very successfully ethanol basis swaps and this is generally what we're talking about, fairly low-tech anyway. You can think of this as maybe similar to what ClearPort does in the energy area.

Niamh Alexander - KBW

Okay. That's helpful, thank you.

Craig S. Donohue - Chief Executive Officer

We will be able to implement very quickly once we have approval.

Niamh Alexander - KBW

Okay, that's great. And then if I could just stick with the central clearing theme, credit derivatives are certainly getting a lot of attention these days and I understand the brokers themselves are working on a consortium to work with the Chicago [inaudible]. Is there some… an opportunity for CME here, or how should I think about it... how CME can best lever its facilities?

Craig S. Donohue - Chief Executive Officer

I think that that’s something that we're very open to and we'll be working with people who are active in the credit markets, which certainly do include the investment banks, to consider how we can structure a service that would be supportive of their interest in the market. But we'll have more to say on that as we complete the acquisition.

Niamh Alexander - KBW

Okay, that's helpful. Thanks. And then just lastly, on the Russell, can you help me think about once you get through the rebalance in June, are your customers even focused on right now that you'll lose your exclusivity in September? Do you think it's just once that we get past June we'll get a sense of weather they're going to start shifting some volume to the S&P indices?

Craig S. Donohue - Chief Executive Officer

There is a lot going on in the Russell contracts and we continue to have the vast majority, 99 point something percent of the volume on any given day. Yes, I think customers are focused on September will be the last expiration for the Russell products here. I think though a lot of it has to do with the product is so successful here that there is no… they don’t see a reason for them to change the behavior at this point. And to your point, Niamh, that it has to get through the Russell rebalancing of the index post the June launch. So I think the market is trying to understand all the complications of this and what the impacts on them will be. Some of this business has alternatives. Some people trade the products not because it’s the Russell, but because of the volatility characteristics or the lack of correlation of the S&P. We do see some people beginning to use some of the other S&P products or the Dow products or the NASDAQ products. So we will have see as it goes through the summer.

Niamh Alexander - KBW

Okay, that's helpful. Thanks. And just lastly, on the Russell, can you give me a sense of the average rate for contract for those Russell futures contract? I expect there is a lot of members treading that at a discount?

Rick Redding - Managing Director, Products & Services

I would just… Niamh, I will just look at it in terms of the average rate per contract for the whole mini sector.

Niamh Alexander - KBW

The mini, okay, that's helpful. Thanks for taking my questions.

Operator

We will go next to Don Fandetti with Citi.

Donald Fandetti - Citigroup

Hi, good morning everyone. Craig, just wanted to see if you had an update on the CFETS China initiative in terms of potential timing. Could we hear something in 12 months? I want to get your thoughts there.

Craig S. Donohue - Chief Executive Officer

We hear something in, did you say 12 months?

Donald Fandetti - Citigroup

Yes, I mean is that something that we could hear in terms of '08 or is it more like an '09 or is it just sort work in progress?

Craig S. Donohue - Chief Executive Officer

I’m just laughing because it's already been 12 months, but I think that there is the distinct likelihood that we are going to have to try to explore other alternatives with CFETS in terms of the structural arrangements for… and by that I mean the regulatory issues, for how we actually move forward with our linkage with CFETS. There is a variety of ways in which we can do that. We had hoped initially that we would be successful sooner than we have been in gaining the exemption for registration for CFETS, but I think with the time that has passed and the indications that we're getting we may need to explore other alternatives. I will tell you that both we and CFETS continue to be very committed to the accomplishment of the link, but other ways in which that could be done would be for example for CFETS to begin clearing positions through other registered FCMs on an interim basis while they pursue a registration or while we think of other alternatives in ways in which we could pursue it, different exemption requests. So, we're working on that right now, we'll [inaudible].

Donald Fandetti - Citigroup

Okay. Thank you, that's all I have.

Operator

Thank you. In the interest of time, if you could please limit yourself to one question to allow everyone a chance to ask. Our next question will come from Jonathan Casteleyn with Wachovia Securities.

Jonathan Casteleyn - Wachovia Capital

Thank you. Just I’d like an update on FX MarketSpace please. I think the daily notionals have been pulled off the websites, so just curious as to what the daily trading values are as of today, and then if there is even been an intangible benefit to the jump-all [ph] economics?

Rick Redding - Managing Director, Products & Services

Yes, this is Rick. There is couple of things going on with FX MarketSpace. I think you saw probably in the last couple of weeks an announcement of an improved way to clear the products and that's in process too. FXMS is not releasing daily volumes. I think in December you saw some weaker volumes our of FXMS. Since then the volumes are better, but they're are still not where we want them to be. We’re still in the long-term, as Craig mentioned in his remarks, very committed that this is a model that we can provide clearing and some execution in the cash FX space, but obviously we would like to see more attraction.

Jonathan Casteleyn - Wachovia Capital

Okay, and then any benefit from jump-all [ph], is there any way to articulate that or any stats you can point to?

Rick Redding - Managing Director, Products & Services

They actually have not made that data public so, there is no data at this time.

Jonathan Casteleyn - Wachovia Capital

Okay. I have one follow up for Craig. I mean there is so much going on at the exchange, closing CBOT and you're obliviously bidding for NYMEX and doing bolt-on acquisitions. Can you just rank and file the top three initiatives for this year, just center us on what you think the top three opportunities are because as you say there is a lot going on?

Craig S. Donohue - Chief Executive Officer

I think it's hard to answer that neatly because there are very large-scale things that we're doing like the acquisition and integration of the Board of Trade, like the acquisition of NYMEX. So… and then separately move in the kind of organic category across each our existing businesses we have a multitude of key priorities in fixed income and interest rates and equities and commodities and so on and so forth. So, it just depends on what level we're talking about. But… I mean the international side of growth is very important to us, we're very focused on that. We're very focused on our longer-term portfolio of initiatives, which really do relate to the over-the-counter markets as we've talked about during the call. So, we've got kind of transformative M&A stuff, we have long term sort of growth initiatives that are really focused on five or more years out and then we have got the current initiatives in the core business much of which relates to globalization, further improvements in technology, further product extensions and new product innovation.

Jonathan Casteleyn - Wachovia Capital

Okay, thanks. I appreciate that.

Craig S. Donohue - Chief Executive Officer

We have a lot going on.

Operator

We will go next to Daniel Harris of Goldman Sachs.

Dan Harris - Goldman Sachs

Hi, thanks for taking the question. I’d like to just go back to page ten of the handout for the quarter and this is the one on the globalization of the business and internationalization. I mean how should I think about just… and I’m sure it is hard for you given how the orders come in. How do you think about what the total volume from international participants is? I mean if the 7% from the international hub seems way too low and the overnight rate of 16% is probably a floor, so when you guys think about where the volumes are coming from non-US versus US, I mean how do you think about that number?

Craig S. Donohue - Chief Executive Officer

Well, I will give an opinion on that. I mean I think several years ago we used to say that we thought that getting to 15% of our total average daily volumes coming from outside the US would be a reference point only because the exchanges in Europe that had been little sooner than we were to the kind of distribution of products outside of the US or in their case outside of Europe had achieved those levels of volume and some of them were actively traded [inaudible] futures contracts or short-term interest rate contracts. I think today with the broadened portfolio of products that we have as a result of the combination of CME and CBOT, but then also because we have been providing trade matching services to NYMEX in the energy and metals area, I think we can do better than that given the breadth of products and liquidity and customer base that we now have. And so we're working our way toward that. I think the opportunity is actually quite significant and that's why as you're seeing us building more volumes coming through the hubs or more volumes happening outside of the North American hours of trading. You see us making further investments in marketing, sales and business development capabilities elsewhere. And then, just generally at a more macro level, it's obvious to us that growth and growth rates will be more significant in emerging markets than they have been in the more established North American and European markets over the next 10 to 15 years.

Dan Harris - Goldman Sachs

Okay. And then just to make sure I understand, so if Deutsche Bank or SocGen, which are based in Europe are treading on CME, but they are trading out of Europe, would that be impacting the non-US volumes?

Craig S. Donohue - Chief Executive Officer

It's very difficult to answer that because… I mean most large global trading operations are trading 24 hours a day and passing their book of exposures essentially around the globe. I would expect that they are active with us not just during the North American day when the vast amount of liquidity is available, but they are likely also active with us in some fashion during the European only or Asian only time zone.

Dan Harris - Goldman Sachs

Okay. That’s all, Craig. I appreciate it.

Craig S. Donohue - Chief Executive Officer

You're welcome.

Operator

We will go next to Robert Rutschow with Deutsche Bank.

Rob Rutschow - Deutsche Bank

Hi good morning. Just a couple of quick questions. On the volumes and the speed enhancements that you’ve put in place, are you seeing any shift kind of in the early days here in March and April towards a different member, non-member mix and… in terms of algorithmic trading?

James E. Parisi - Managing Director and Chief Financial Officer

Rob, this is Jamie. I would say there is... generally speaking there is not a big lightning shift here and it’s not something that we report on a monthly basis as you know. So over time, we have seen significant change in the market as the algorithmic traders come in. We have seen hedge funds be larger players and all along our overall member, non-member mix has historically across the exchange averaged around that 80%, 20% breakdown. So I wouldn't expect to see huge shifts away from that.

Craig S. Donohue - Chief Executive Officer

And that is particularly impressive given that a lot of the... of those proprietary groups have become members… a lot of those high velocity groups have become members of the exchange over time and yet you're seeing a fairly stable member, non-member mix. So it's telling you that the customer acquisition that we are getting has actually been very, very meaningful.

Rob Rutschow - Deutsche Bank

Okay, and then in terms of your logical hedger base, I mean in context of the deleveraging comments, is it logical to assume that we maybe see less activity from the banks going forward or are you looking at it differently?

Rick Redding - Managing Director, Products & Services

Yes, I mean I think what Craig said earlier is apropos that the proprietary trading at the banks is growing at basically… or very near the rate of the overall growth. So they think that is the only empirical thing that we can look at, at this point.

Craig S. Donohue - Chief Executive Officer

Yes, I think it's logical to think that the investment banks are going to be cutting back in areas where they are either using on a relative basis more capital or they are taking on more trading risk or counter-party credit risk. And clearly, our model is an attractive alternative for people who are still looking for leveraged opportunities in deep liquidity, but don't want to be trading opposite potentially weak counter-parties or worrying about what the value of their OTC exposures is. So again, I mean I think it's a net positive even from the investment bank proprietary trading perspective to increasingly rely on standardized transparent centrally cleared futures versus those kind of markets are instruments that suffer the defects where they’ve had very substantial losses.

Rob Rutschow - Deutsche Bank

Okay. And a second math [ph], one quick housekeeping item. Could you give us the average sec lending balance for the quarter?

James E. Parisi - Managing Director and Chief Financial Officer

Sure. The average sec lending balance was roughly $2.4 billion.

Rob Rutschow - Deutsche Bank

Okay, thank you.

Operator

Our last question will come from Roger Freeman with Lehman Brothers.

Roger Freeman - Lehman Brothers

Hi, good morning, and just a couple of macro questions. With regard to the changing margin requirements over the last several months, there has been trend towards increasing and I guess yesterday there were a whole host of changes, but somewhere actually decreases again like [inaudible]. I guess my question is just from a risk management standpoint how do you evaluate that those changes are purely based on volatility or other perceived underlying market risks? And what have you… what kind of observable changes have you seen over time in trading volumes in response to increases or decreases?

Rick Redding - Managing Director, Products & Services

Well, I mean obviously… well, maybe let's start with margins are set to ensure the financial safeguards and financial wherewithal of the CME clearinghouse and they are set very much based on volatilities and expected as well as unexpected price movements, but we also take into account a number of other factors so that it’s a kind of holistic determination including concentration risk. We might set margin requirements, for example, higher if we felt that firms had a very concentration of exposure in a particular market and one that we thought could be increasingly volatile or even if they were sort of sovereign risks involved, we would typically take into account those kinds of issues, any margin requirements. I think in general terms, as you seen most margins increasing in correlation to increased volatility you have seen record volumes and activity on our exchange and so I think it's fair to say that margin requirements aren’t really impacting trading behaviors or utilization of the product.

Roger Freeman - Lehman Brothers

Okay, that's helpful. And secondly, Rick, you were talking about… I think you have made some comments about how increased volatility can actually reduce open interest. Can you just sort of walk through in terms of some of the trading strategies why that's the case? And I guess if you sort of look into April, where volatility has come down, open interest has only slightly come up again. So, it doesn't look like there has been a reversal of that. And I guess also just tied to that, is there any sort of delayed impact from declining open interest into volumes where April today, you were now seeing a 20% plus decline in the average daily volume from March?

Craig S. Donohue - Chief Executive Officer

Yes, be careful comparing March to April because you have a lot of roll effects and those when you're looking at absolute volume levels. But in general, if… it's kind of the old axiom, if you know the direction of the market, pretty futures, if you don't and you just know… and you're trying to trade volatility, you trade options, it looks so, I think you need to take a step back and look at something like euro dollar options where volatility is down… in April from March it is down from 45% to 40%. So, all these are extremely at high levels. But what happens is in kind of high volatility environments, you have people that become somewhat less willing to hold position for a long period of time. So what you see in more volatile conditions is people trade more futures typically than auction because your holding period becomes much, much shorter. So, you almost have to isolate what the strategies are in those the markets because if you look back in March where there was actually a lot of auctions positions, it looks to us like it were put on to help finance positions within some of these trading entities. But that's also a function what spreads are in the market, for example, and what those opportunities are. That's in market condition that comes and goes. That's something that no one can forecast or foresee.

Roger Freeman - Lehman Brothers

All right, that's helpful. Just real quickly, lastly, just as you talk to your FCMs have you anecdotally heard of any increasing default rates among their customers due to higher volatility prices and commodities?

Craig S. Donohue - Chief Executive Officer

No, we haven't really heard that. I mean the only sort of maybe exception to the question that you asked earlier about the impact of margin requirements and trading activity has been I think there has been for some of the grain elevators some pressure in terms of financing the cost of their hedges. But I would call that a more discrete and narrow impact. In the vast majority of our business, we've seen little or no correlation between increased margin requirements and volumes or open interest. So that would be the kind of one exception.

Roger Freeman - Lehman Brothers

Okay. Thanks a lot.

Craig S. Donohue - Chief Executive Officer

Okay. I think that's it for questions. And I would just want to thank everybody for joining us today and we look forward to talking with you again soon.

Operator

Thank you. That does conclude our call today. We would like to thank everyone for their participation. Have a great day.

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Source: CME Group, Inc. Q1 2008 Earnings Call Transcript
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